Warren Buffett often talks about how the secret to getting rich simply requires patience. You buy good companies and hold them for a long time.
“Get rich slowly,” however, has never been a philosophy many American investors embrace. That seems to have gotten worse over the past few years, with easy access to free trades gamifying the stock market.
When you can jump in and out of stocks with seemingly no consequences (except for tax liability if you made a profit), your view of investing can change. It was only a few years ago when trades cost money, and that acted as a bit of check on people buying or selling shares based on the news of the day.
The reality is that you should not buy or sell shares of Walt Disney (DIS) – Get The Walt Disney Company Report because “Ms. Marvel” performed poorly in its first weekend on Disney+. You should also avoid, for example, making a Disney investment decision based on speculation about the impact of high gas prices or inflation on sales of theme-park tickets.
Investors buy shares in companies because they broadly see the arrow pointing up over the long-term. That’s a much safer play than guessing at how short-term economic problems may or may not hurt shares.
The reality is that if you’re a long-term investor, whatever happens in the economy over the next few months and even few years does not change your thesis for most companies.
But — Should I Invest in Stocks Now?
Most solid long-term investments can be purchased at a discount right now. You can buy shares in a dozens of top-tier companies built for long-term success at prices that may be as much as 50% lower than they were at the beginning of the year.
If you already own shares of some of these companies and have seen your investment sink in value, buying more shares at lower prices brings your average cost to own the stock down. This strategy is called “dollar cost averaging” and it’s a pillar of being a long-term investor.
Basically, if you’re always buying shares (setting aside a set amount each week, each paycheck, or each month), you can buy shares in companies you believe in when the price is advantageous. Over time, historically, good companies perform and their stock prices go up.
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In the moment, a stock’s price may fall for reasons that have nothing to do with the company. Apple (AAPL) – Get Apple Inc. Report, for example, has delivered steadily strong quarterly results and has delivered on the tech giant’s goal of growing service revenue. Despite that history, the shares are down 25% year-to-date largely because the market has short-term concerns about the economy, supply chains, and costs.
Apple may have a slower-than-expected quarter, but has anything changed that affects its long-term success? People may wait a quarter or two to upgrade their phones, but nothing has changed in a way that suggests they won’t eventually do that while continuing to spend more money in the App Store and on Apple’s own services.
Exhale, Invest, Repeat
Short-term market movements are reactionary. They reflect what’s happening in the moment usually based on very broad considerations. Your portfolio — at least the long-term part of it — can benefit from not having to worry about what’s happening right now.
Think of it this way: If you play golf and have a new set of clubs you have been keeping an eye on, you would buy those clubs if they were marked half off even if you don’t have a tee time coming up soon. A down market helps you build out your portfolio for long-term success.
The challenge, of course, is finding the right companies, To do that, consider the Apple model above and assess whether whatever appears to be dragging a company’s shares down hurts its business now or for the long term. Here’s an example:
Walmart (WMT) – Get Walmart Inc. Report, Target (TGT) – Get Target Corporation Report, Costco (COST) – Get Costco Wholesale Corporation Report, and Amazon (AMZN) – Get Amazon.com Inc. Report shares have posted big drops because they face higher costs and have chosen not to pass all of them onto customers. That’s arguably a positive, but the short-term market is focusing on the lower-profits part, not the still-making-money-while-building-stronger-customer-relationships part.
Kroger (KR) – Get Kroger Company (The) Report is actually up year to date. It faces all those same short-term concerns but also now has to compete with Amazon, Walmart, Target, and Costco, which are all investing heavily into grocery. That suggests that Kroger has a long-term expensive problem that may be very hard to solve.
The first four, however, may battle each other but they seem set up to be market leaders for decades.
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